Wetherell Mayfairs Fitnes Properties

In Formula One, the driver knows the track. In the case of the housing market, what happens next depends on how lenders react.

Rebecca O'Connor

Picture a Formula One race track. Now imagine that the housing market is a car and mortgage lenders are the driver; Jenson Button, for argument's sake. A bend has just come into view. If they take it too fast, the market could career off course; too slow, and there is a risk of losing valuable ground or stalling.

This is where the housing market is now: corner in view. House prices are still falling and were down 12.3 per cent in February, according to government figures. And yet other indicators from the Royal Institution of Chartered Surveyors and the Council of Mortgage Lenders showed that there was a 4 per cent rise in mortgage approvals in February, an increase in buyer inquiries for the fifth month in a row in March and a slight rise in sales, albeit at low levels.

What happens next depends on how lenders take the corner. In Formula One, the driver knows the track. In the case of the housing market, no one can predict the shape of a recovery, or how long it will take to turn.

There are some good educated guesses, along the lines of "definitely more of an L than a V-shape" with prices expected to bump around at the bottom until 2011. But the danger is that the recent positive indicators are read as signs of imminent recovery rather than stabilisation. As Peter Wetherell, of the agent Wetherell in Mayfair, puts it: "Any small pick-up of sales in such a low volume market may be incorrectly perceived as a recovery." Such a stance might encourage premature overoptimism among sellers, who in their small numbers can be forgiven for feeling a bit vulnerable, but not for pre-emptively raising asking prices, a move that would potentially deter the queues of buyers eager to compete for the right property at the right price.

Figures out on Monday are expected to show that some sellers are already giving in to this misguided zeal and upping their asking prices. They should realise that, so far, evidence suggests that banks do not yet share their optimism and are erring on the side of caution, choosing a slow and steady approach over green-for-go lending. This is sensible — no one is suggesting a return to money-for-nothing mortgages. However the banks' approach is likely to continue to thwart househunters, particularly first-time buyers with a deposit of less than 10 per cent, for whom it is still a case of "computer says no". Those whose credit record is not Persil-white should also brace themselves for rejection.

For blemish-free buyers who scrape together 10 per cent, tempting options are opening up, but with conditions that limit the risks to the bank. The equivalent of Button's performance-enhancing double diffuser, if you will. Ray Boulger, of the mortgage broker John Charcol, predicts, for example, that big lenders such as Abbey will soon join HSBC in offering competitive interest rates at higher loan-to-value limits, but only to buyers who also open a current account. This is nirvana for jittery banks, allowing them to spot early debt-warning signs, such as salary income failing to appear. If widely adopted, there will be a new trade-off to consider when searching for a home loan: price or privacy. Such risk-reducing moves will also strengthen the correlation between your credit history and future borrowing potential, a link that will ultimately put homebuyers with a firm grip on their finances in the driving seat of recovery.

Climbing Everest Those first-time buyers for whom a deposit of even 10 per cent still seems like a feat of Everest-like proportions might well be weighing up the merits of homeownership. They will welcome government plans to boost the provision of affordable rented accommodation that is designed to a standard that would pass Kirstie Allsopp's liveability test, professionally managed by a reputable landlord and at a cost that could leave renters with enough spare cash at the end of the month to invest elsewhere. Make long-term renting viable, the argument goes, and those excluded from the ladder will be content to give up trying to get on it. So far, so continental (it's how they do it in Germany).

To this end, as reported in Bricks & Mortar two weeks ago, the Homes and Communities Agency is inviting institutional investors to back a professional private rented sector, stepping in where mortgage lenders still fear to tread — the new-build market — and helping hard-up housebuilders in the process. The debate over which housing model is better — renting or buying — might be academically interesting. But in the face of ever-lengthening social housing waiting lists, it is somewhat impractical to dwell on. Expect more details from the Chancellor in the Budget next Thursday.

Less is more According to one agent selling one and two-bed flats, downsizing couples are buying one flat for themselves and another for their children. The restored two-bed Devon cottage, above, could suit either generation — or whichever is most short of furniture. It is for sale with Webbers (01805 624334) at £155,000 with all contents, even the toaster, included. The owners, a couple in their sixties, are moving to New Zealand. Everything must go.